Health factor

A health factor measures the value of collateral in relation to the amount of a loan. A higher health factor indicates a lower risk for the borrower. A loan with more collateral than the value of the loan is considered over-collateralized, which reduces the risk of liquidation.

The health factor is calculated by dividing the value of the collateral by the amount of the loan. For example: a loan with a collateral value of $150 coupled with a debt of $100, produces a health factor of 1.5.

For users who are unfamiliar with health factors, but familiar with the term loan-to-value: a health factor of 1.5 is the same as a loan-to-value of 0.67.